Is Today’s Real Estate Market Healthy?

Today’s housing market displays a few characteristics that may point to some potential issues in the coming years:

Lack of Inventory: A healthy real estate inventory consists of approximately six months of supply. In parts of the country, today’s inventory is anywhere from one to three months. This is a fraction of the inventory required to meet demand, which is driving up prices and creating a feeding frenzy for the small supply of inventory on the market.

Homes Going Under Contract in Days: In a healthy market, homes typically go under contract within a matter of weeks, or even one to three months. In today’s market, some homes are going under contract within days of coming on the market – which indicates a serious inequality between supply and demand.

Multiple Offers: Multiple offers are good for sellers, but bad for buyers, as they drive up prices.

What are the Consequences of Today’s Highly Competitive Housing Market?

The immediate effect of today’s highly competitive housing market is that it’s creating a feeding frenzy in some parts of the country. With demand high and supply low, multiple offers are driving up prices. Unfortunately, this is the same type of activity that often precedes housing bubbles – an unwarranted inflation of home prices that can cause big issues when the bubble bursts. Homeowners who find themselves on the high end of the bubble may end up with mortgages that are underwater if the bubble bursts – much like the housing market decline that started in 2007-2008.

Today’s housing market is good for sellers, but it’s not necessarily a healthy market for potential buyers. Buyers can and should still buy homes, but it’s more important than ever to do your research and put a firm cap on what you’re willing to spend for a given property. Work with a trusted real estate agent and have a good strategy going into the home purchase process so you’re not burned by today’s highly competitive market.